**Understanding Present Value of Future Investments**Suppose you want to realize a future value of $150,000 in 30 years on an investment you make. The average annual rate of return is 8.75%. What will be the present value of your investment?**Options:**- $1,857,673- $12,112- $150,000- $163,125**Explanation:**To determine the present value of your investment, you can use the formula for Present Value $ (PV) $:\[PV = \frac{FV}{(1 + r)^n}\]where:- $ FV $ is the future value, which is $150,000- $ r $ is the annual rate of return, which is 8.75% or 0.0875- $ n $ is the number of years, which is 30Applying the values:\[PV = \frac{150,000}{(1 + 0.0875)^{30}}\]By computing the denominator first:\[(1 + 0.0875)^{30} \approx 11.1682 \]Then,\[PV = \frac{150,000}{11.1682} \approx 13,435.27\]Therefore, the present value of your investment that will grow to $150,000 in 30 years at an annual return rate of 8.75% is approximately $13,435.27.However, among the provided options:- $1,857,673 is vastly overestimated.- $12,112 is slightly underestimated.- $150,000 is the future value, not the present value.- $163,125 is overestimated.Thus, the closest to our calculation is not explicitly listed here, yet understanding such calculations helps in making well-informed investment decisions.

Given - Future Value, (FV) - $150,000 No. of years, (n) = 30 The annual rate of return, (i) = 8.75%…

Answered: Suppose you want to realize a future…

Suppose you want to realize a future value of $150,000 in 30 years on an investment you make. The average annual rate of return is 8.75%. What will be the present value of your investment?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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